10-Q 1 gsit-20140930x10q.htm 10-Q gsit_Current folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission File Number 001-33387

 


 

GSI Technology, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

77-0398779

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

1213 Elko Drive

Sunnyvale, California 94089

(Address of principal executive offices, zip code)

 

(408) 331-8800

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

Large accelerated filer  

 

Accelerated filer  

 

 

 

Non-accelerated filer  

 

Smaller reporting company  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  

 

The number of shares of the registrant’s common stock outstanding as of October 31, 2014: 23,736,079

 

 

 


 

 

GSI TECHNOLOGY, INC.

 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014

 

 

 

 

 

Page

 

 

PART I — FINANCIAL INFORMATION 

 

 

 

 

Item 1. 

Financial Statements

 

Condensed Consolidated Balance Sheets

 

Condensed Consolidated Statements of Operations

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

 

Condensed Consolidated Statements of Cash Flows

 

Notes to Condensed Consolidated Financial Statements

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

24 

Item 4. 

Controls and Procedures

24 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

24 

Item 1A. 

Risk Factors

26 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

41 

Item 6. 

Exhibits

42 

Signatures 

43 

Exhibit Index 

44 

 

 

1


 

 

PART I — FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

March 31,

 

 

2014

  

2014

 

 

 

 

 

 

 

 

 

(In thousands, except share

 

 

and per share amounts)

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

   

$

34,760 

    

$

41,520 

Short-term investments

 

 

27,971 

 

 

39,412 

Accounts receivable, net

 

 

7,830 

 

 

8,238 

Inventories

 

 

9,240 

 

 

8,185 

Prepaid expenses and other current assets

 

 

5,471 

 

 

5,152 

Total current assets

 

 

85,272 

 

 

102,507 

Property and equipment, net

 

 

9,006 

 

 

9,683 

Long-term investments

 

 

19,011 

 

 

28,819 

Other assets

 

 

594 

 

 

668 

Total assets

 

$

113,883 

 

$

141,677 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Accounts payable

 

$

3,724 

 

$

4,870 

Accrued expenses and other liabilities

 

 

4,244 

 

 

4,444 

Deferred revenue

 

 

3,100 

 

 

2,523 

Total current liabilities

 

 

11,068 

 

 

11,837 

Income taxes payable

 

 

1,492 

 

 

1,462 

Total liabilities

 

 

12,560 

 

 

13,299 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock: $0.001 par value authorized: 5,000,000 shares; issued and outstanding: none

 

 

 

 

Common Stock: $0.001 par value authorized: 150,000,000 shares; issued and outstanding: 23,736,079  and 27,561,482 shares, respectively

 

 

24 

 

 

28 

Additional paid-in capital

 

 

31,780 

 

 

56,399 

Accumulated other comprehensive income (loss)

 

 

(3)

 

 

33 

Retained earnings

 

 

69,522 

 

 

71,918 

Total stockholders’ equity

 

 

101,323 

 

 

128,378 

Total liabilities and stockholders’ equity

 

$

113,883 

 

$

141,677 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

 

GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

   

$

13,263 

    

$

15,542 

    

$

26,208 

    

$

31,954 

Cost of revenues

 

 

7,202 

 

 

8,140 

 

 

14,208 

 

 

17,086 

Gross profit

 

 

6,061 

 

 

7,402 

 

 

12,000 

 

 

14,868 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,946 

 

 

2,951 

 

 

6,019 

 

 

5,948 

Selling, general and administrative

 

 

4,156 

 

 

4,210 

 

 

8,491 

 

 

9,220 

Total operating expenses

 

 

7,102 

 

 

7,161 

 

 

14,510 

 

 

15,168 

Income (loss) from operations

 

 

(1,041)

 

 

241 

 

 

(2,510)

 

 

(300)

Interest income, net

 

 

78 

 

 

95 

 

 

174 

 

 

199 

Other income (expense), net

 

 

34 

 

 

(10)

 

 

 

 

(3)

Income (loss) before income taxes

 

 

(929)

 

 

326 

 

 

(2,327)

 

 

(104)

Provision (benefit) for income taxes

 

 

21 

 

 

(60)

 

 

69 

 

 

(49)

Net income (loss)

 

$

(950)

 

$

386 

 

$

(2,396)

 

$

(55)

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04)

 

$

0.01 

 

$

(0.09)

 

$

 —

Diluted

 

$

(0.04)

 

$

0.01 

 

$

(0.09)

 

$

 —

Weighted average shares used in per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

25,540 

 

 

27,631 

 

 

26,512 

 

 

27,407 

Diluted

 

 

25,540 

 

 

28,975 

 

 

26,512 

 

 

27,407 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

 

GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

   

$

(950)

    

$

386 

    

$

(2,396)

    

$

(55)

Net unrealized gain (loss) on available-for-sale investments, net of tax

 

 

(40)

 

 

46 

 

 

(36)

 

 

(39)

Total comprehensive income (loss)

 

$

(990)

 

$

432 

 

$

(2,432)

 

$

(94)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

 

GSI TECHNOLOGY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

   

$

(2,396)

    

$

(55)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Allowance for sales returns, doubtful accounts and other

 

 

(5)

 

 

(14)

Provision for excess and obsolete inventories

 

 

622 

 

 

526 

Depreciation and amortization

 

 

931 

 

 

998 

Stock-based compensation

 

 

1,144 

 

 

1,128 

Deferred income taxes

 

 

 —

 

 

102 

Windfall tax benefits from stock options exercised

 

 

 —

 

 

(403)

Amortization of bond premium on investments

 

 

340 

 

 

439 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

413 

 

 

445 

Inventory

 

 

(1,677)

 

 

2,097 

Prepaid expenses and other assets

 

 

(334)

 

 

(36)

Accounts payable

 

 

(1,146)

 

 

(63)

Accrued expenses and other liabilities

 

 

(175)

 

 

297 

Deferred revenue

 

 

577 

 

 

(449)

Net cash provided by (used in) operating activities

 

 

(1,706)

 

 

5,012 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of investments

 

 

(4,000)

 

 

(19,708)

Sales and maturities of short-term investments

 

 

24,873 

 

 

20,111 

Purchases of property and equipment

 

 

(160)

 

 

(138)

Net cash provided by investing activities

 

 

20,713 

 

 

265 

Cash flows from financing activities:

 

 

 

 

 

 

Repurchase of common stock

 

 

(26,430)

 

 

 —

Windfall tax benefits from stock options exercised

 

 

 —

 

 

403 

Proceeds from issuance of common stock under employee stock plans

 

 

663 

 

 

2,021 

Net cash provided by (used in) financing activities

 

 

(25,767)

 

 

2,424 

Net increase (decrease) in cash and cash equivalents

 

 

(6,760)

 

 

7,701 

Cash and cash equivalents at beginning of the period

 

 

41,520 

 

 

41,120 

Cash and cash equivalents at end of the period

 

$

34,760 

 

$

48,821 

Non-cash financing activities:

 

 

 

 

 

 

Purchases of property and equipment through accounts payable and accruals

 

$

 

$

 —

Supplemental cash flow information:

 

 

 

 

 

 

Net cash paid for income taxes

 

$

52 

 

$

10 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

 

GSI TECHNOLOGY, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements of GSI Technology, Inc. and its subsidiaries (“GSI” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission.  Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for annual financial statements.  These interim financial statements contain all adjustments (which consist of only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly the interim financial information included therein.  The Company believes that the disclosures are adequate to make the information not misleading.  However, these financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

 

The consolidated results of operations for the three months and six months ended September 30, 2014 are not necessarily indicative of the results to be expected for the entire fiscal year.

 

Significant accounting policies

 

The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

 

Litigation and settlement costs

 

From time to time, the Company is involved in legal actions. The Company currently is a party to pending legal proceedings which it is defending aggressively.  See Note 6 for additional information regarding this pending litigation.  There are many uncertainties associated with any litigation, and the Company may not prevail.  The litigation, regardless of its eventual outcome, will be costly and time consuming and, should the outcome be adverse to the Company, could result in the Company being required to pay significant monetary damages.  If that occurs, our business, financial condition and results of operations could be materially and adversely affected. If information becomes available that causes us to determine that a loss in any of our pending litigation, or the settlement of such litigation, is probable, and we can reasonably estimate the loss associated with such events, we will record the loss in accordance with GAAP. However, the actual liability in any such litigation may be materially different from our estimates, which could require us to record additional costs. 

 

Recent accounting pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) on Income Taxes, to improve the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance is expected to reduce diversity in practice and is expected to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. Implementation of this guidance in the quarter ended June 30, 2014 did not have a material impact on the Company’s financial position or results of operations.

 

6


 

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The new accounting standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

 

 

NOTE 2—NET INCOME (LOSS) PER COMMON SHARE

 

The Company uses the treasury stock method to calculate the weighted average shares used in computing diluted net income (loss) per share. The following table sets forth the computation of basic and diluted net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share amounts)

Net income (loss)

   

$

(950)

    

$

386 

    

$

(2,396)

    

$

(55)

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares—Basic

 

 

25,540 

 

 

27,631 

 

 

26,512 

 

 

27,407 

Dilutive effect of employee stock options

 

 

 

 

1,331 

 

 

 

 

Dilutive effect of employee stock purchase plan options

 

 

 

 

13 

 

 

 

 

Weighted average shares—Dilutive

 

 

25,540 

 

 

28,975 

 

 

26,512 

 

 

27,407 

Net income (loss) per common share—Basic

 

$

(0.04)

 

$

0.01 

 

$

(0.09)

 

$

Net income (loss) per common share—Diluted

 

$

(0.04)

 

$

0.01 

 

$

(0.09)

 

$

 

The following shares of common stock underlying outstanding stock options, determined on a weighted average basis, were excluded from the computation of diluted net income (loss) per share as they had an anti-dilutive effect:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Shares underlying options

   

3,503 

    

1,558 

    

3,375 

    

2,964 

 

 

 

 

NOTE 3—BALANCE SHEET DETAIL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

March 31, 2014

 

 

 

 

 

 

 

 

 

(In thousands)

Inventories:

 

 

 

 

 

 

Work-in-progress

   

$

2,852 

    

$

2,011 

Finished goods

 

 

5,785 

 

 

5,588 

Inventory at distributors

 

 

603 

 

 

586 

 

 

$

9,240 

 

$

8,185 

 

7


 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

March 31, 2014

 

 

(In thousands)

Accounts receivable, net:

 

 

 

 

 

 

Accounts receivable

   

$

7,936 

    

$

8,349 

Less: Allowances for sales returns, doubtful accounts and other

 

 

(106)

 

 

(111)

 

 

$

7,830 

 

$

8,238 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

March 31, 2014

 

 

(In thousands)

Prepaid expenses and other current assets:

 

 

 

 

 

 

Prepaid tooling and masks

 

$

1,362 

 

$

833 

Prepaid income taxes

 

 

2,601 

 

 

2,598 

Other receivables

 

 

484 

 

 

596 

Other prepaid expenses

 

 

1,024 

 

 

1,125 

 

 

$

5,471 

 

$

5,152 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

March 31, 2014

 

 

(In thousands)

Property and equipment, net:

 

 

 

 

 

 

Computer and other equipment

 

$

16,942 

 

$

16,990 

Software

 

 

4,792 

 

 

4,780 

Land

 

 

3,900 

 

 

3,900 

Building and building improvements

 

 

2,256 

 

 

2,256 

Furniture and fixtures

 

 

110 

 

 

110 

Leasehold improvements

 

 

791 

 

 

791 

 

 

 

28,791 

 

 

28,827 

Less: Accumulated depreciation and amortization

 

 

(19,785)

 

 

(19,144)

 

 

$

9,006 

 

$

9,683 

 

Depreciation and amortization expense was $377,000 and $459,000, respectively, for the three months ended September 30, 2014 and 2013 and $842,000 and $908,000, respectively, for the six months ended September 30, 2014 and 2013.

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

March 31, 2014

 

 

(In thousands)

Other assets:

 

 

 

 

 

 

Non-current deferred income taxes

 

$

39 

 

$

24 

Intangibles, net

 

 

475 

 

 

564 

Deposits

 

 

80 

 

 

80 

 

 

$

594 

 

$

668 

 

8


 

The following table summarizes the components of intangible assets and related accumulated amortization balances at September 30, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

Net Carrying Amount

Intangible assets:

 

 

 

 

 

 

 

 

 

Product designs

 

$

590 

 

$

428 

 

$

162 

Patents

 

 

720 

 

 

407 

 

 

313 

Software

 

 

80 

 

 

80 

 

 

 —

Total

 

$

1,390 

 

$

915 

 

$

475 

 

Amortization of intangible assets included in cost of revenues was $44,000 and $45,000, respectively, for the three months ended September 30, 2014 and 2013 and $89,000 and $90,000, respectively, for the six months ended September 30, 2014 and 2013.

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

March 31, 2014

 

 

(In thousands)

Accrued expenses and other liabilities:

 

 

 

 

 

 

Accrued compensation

 

$

2,134 

 

$

2,330 

Accrued professional fees

 

 

699 

 

 

824 

Accrued commissions

 

 

322 

 

 

307 

Other accrued expenses

 

 

1,089 

 

 

983 

 

 

$

4,244 

 

$

4,444 

 

 

 

 

 

NOTE 4—INCOME TAXES

 

The current portion of the Company’s unrecognized tax benefits was $0 at both September 30, 2014 and March 31, 2014. The long-term portion at September 30, 2014 and March 31, 2014 was $1,492,000 and $1,462,000, respectively, of which the timing of the resolution is uncertain.  As of September 30, 2014, $1,122,000 of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets.  As of September 30, 2014 and March 31, 2014, the Company’s net deferred tax assets of $4.5 million and $3.7 million, respectively, were subject to a full valuation allowance. 

 

Management believes that it is reasonably possible that within the next twelve months the Company could have a reduction in uncertain tax benefits of up to $775,000, including interest and penalties, related to positions taken with respect to credits and loss carryforwards on previously filed tax returns.

 

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the Condensed Consolidated Statements of Operations.

 

The Company is subject to taxation in the United States and various state and foreign jurisdictions.  Fiscal years 2011 through 2014 remain open to examination by federal tax authorities, and fiscal years 2010 through 2014 remain open to examination by California tax authorities

 

The Company’s estimated annual effective income tax rate was approximately 4.5% and (3.6)% as of September 30, 2014 and 2013, respectively. The annual effective tax rate as of September 30, 2014 varies from the United States statutory income tax rate primarily due to valuation allowances in the United States whereby pre-tax losses do not result in the recognition of corresponding income tax benefits and expenses. The difference between the effective income tax rate and the applicable United States statutory income tax rate as of September 30, 2013 was primarily due to the effects of tax credits, foreign tax rate differentials and tax free interest income, offset by stock-based compensation expense.

9


 

 

NOTE 5—FINANCIAL INSTRUMENTS

 

Fair value measurements

 

The authoritative accounting guidance for fair value measurements provides a framework for measuring fair value and related disclosures.  The guidance applies to all financial assets and financial liabilities that are measured on a recurring basis.  The guidance requires fair value measurement to be classified and disclosed in one of the following three categories:

 

Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities.  The fair value of available-for-sale securities included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market.  As of September 30, 2014, the Level 1 category included money market funds of $1.1 million, which were included in cash and cash equivalents in the Condensed Consolidated Balance Sheet.

 

Level 2: Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of available-for-sale securities included in the Level 2 category is based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well established independent pricing vendors and broker-dealers. As of September 30, 2014, the Level 2 category included short-term investments of $28.0 million and long-term investments of $19.0 million, which were comprised of certificates of deposit, corporate debt securities and government and agency securities.

 

Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing.  As of September 30, 2014, the Company had no Level 3 financial assets measured at fair value in the Condensed Consolidated Balance Sheet.

 

As of September 30, 2014, there were no liabilities measured at fair value on a recurring basis.

10


 

 

The fair value of financial assets measured on a recurring basis is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

 

Quoted Prices in Active Markets for Identical Assets and Liabilities

 

Significant Other Observable Inputs

 

Significant Unobservable Inputs

 

 

September 30, 2014

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

1,135 

 

$

1,135 

 

$

 —

 

$

 —

Marketable securities

 

 

46,982 

 

 

 —

 

 

46,982 

 

 

 —

Total

 

$

48,117 

 

$

1,135 

 

$

46,982 

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

 

Quoted Prices in Active Markets for Identical Assets and Liabilities

 

Significant Other Observable Inputs

 

Significant Unobservable Inputs

 

 

March 31, 2014

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

3,852 

 

$

3,852 

 

$

 —

 

$

 —

Marketable securities

 

 

68,231 

 

 

 —

 

 

68,231 

 

 

 —

Total

 

$

72,083 

 

$

3,852 

 

$

68,231 

 

$

 —

 

Short-term and long-term investments

 

All of the Company’s short-term and long-term investments are classified as available-for-sale.  Available-for-sale debt securities with maturities greater than twelve months are classified as long-term investments when they are not intended for use in current operations.  Investments in available-for-sale securities are reported at fair value with unrecognized gains (losses), net of tax, as a component of accumulated other comprehensive income in the Condensed Consolidated Balance Sheets.  The Company had money market funds of $1.1 million and $3.9 million at September 30, 2014 and March 31, 2014, respectively, included in cash and cash equivalents in the Condensed Consolidated Balance Sheet.  The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when declines are determined to be other-than-temporary.

 

 

11


 

The following table summarizes the Company’s available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

(In thousands)

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

11,581 

 

$

 

$

 —

 

$

11,585 

Corporate notes

 

 

7,366 

 

 

12 

 

 

 —

 

 

7,378 

Agency bonds

 

 

1,001 

 

 

 

 

 —

 

 

1,002 

Certificates of deposit

 

 

8,000 

 

 

 

 

 —

 

 

8,006 

Total short-term investments

 

$

27,948 

 

$

23 

 

$

 —

 

$

27,971 

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

1,074 

 

$

 

$

 —

 

$

1,079 

Corporate notes

 

 

3,017 

 

 

 

 

 —

 

 

3,026 

Certificates of deposit

 

 

10,250 

 

 

 —

 

 

(12)

 

 

10,238 

Agency bonds

 

 

3,008 

 

 

 —

 

 

(9)

 

 

2,999 

International government obligations

 

 

1,676 

 

 

 —

 

 

(7)

 

 

1,669 

Total long-term investments

 

$

19,025 

 

$

14 

 

$

(28)

 

$

19,011 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2014

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

(In thousands)

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

8,336 

 

$

 

$

 —

 

$

8,340 

Corporate notes

 

 

5,023 

 

 

12 

 

 

 —

 

 

5,035 

Agency bonds

 

 

3,523 

 

 

 

 

 —

 

 

3,525 

Certificates of deposit

 

 

14,997 

 

 

 

 

 —

 

 

15,003 

International government obligations

 

 

7,507 

 

 

 

 

 —

 

 

7,509 

Total short-term investments

 

$

39,386 

 

$

26 

 

$

 —

 

$

39,412 

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

8,227 

 

$

10 

 

$

 —

 

$

8,237 

Corporate notes

 

 

6,392 

 

 

16 

 

 

 

 

 

6,408 

Certificates of deposit

 

 

10,500 

 

 

 —

 

 

(2)

 

 

10,498 

Agency bonds

 

 

2,011 

 

 

 —

 

 

(5)

 

 

2,006 

International government obligations

 

 

1,670 

 

 

 —

 

 

 —

 

 

1,670 

Total long-term investments

 

$

28,800 

 

$

26 

 

$

(7)

 

$

28,819 

 

The Company’s investment portfolio consists of both corporate and governmental securities that have a maximum maturity of three years. All unrealized gains are due to changes in interest rates and bond yields.  Subject to normal credit risks, the Company has the ability to realize the full value of all these investments upon maturity.

 

The deferred tax liability related to unrecognized gains and losses on short-term and long-term investments was $0 and $11,000 at September 30, 2014 and March 31, 2014, respectively.

 

12


 

As of September 30, 2014, contractual maturities of the Company’s available-for-sale non-equity investments were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

 

 

 

 

 

 

Cost

 

Value

 

 

 

 

 

 

 

 

(In thousands)

Maturing within one year

 

 

 

 

 

 

 

$

27,948 

 

$

27,971 

Maturing in one to three years

 

 

 

 

 

 

 

 

19,025 

 

 

19,011 

Maturing in more than three years

 

 

 

 

 

 

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

$

46,973 

 

$

46,982 

 

The Company classifies its short-term investments as “available-for-sale” as they are intended to be available for use in current operations.

 

NOTE 6—COMMITMENTS AND CONTINGENCIES

 

Indemnification obligations

 

The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the Company, under which the Company agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold and certain intellectual property rights. In each of these circumstances, the Company’s indemnification obligations are conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party’s claims. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by it under these agreements.

 

It is not possible to predict the maximum potential amount of future payments that may be required under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material effect on its business, financial condition, cash flows or results of operations.

 

Product warranties

 

The Company warrants its products to be free of defects generally for a period of three years. The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of revenues. Warranty costs were not significant for the three months or six months ended September 30, 2014 or 2013.

 

Legal proceedings

 

In March 2011, Cypress Semiconductor Corporation, a semiconductor manufacturer, filed a lawsuit against the Company in the United States District Court for the District of Minnesota alleging that the Company’s products, including its SigmaDDR and SigmaQuad families of Very Fast SRAMs, infringe five patents held by Cypress.  The complaint seeks unspecified damages for past infringement and a permanent injunction against future infringement.

 

On June 10, 2011, Cypress filed a complaint against the Company with the United States International Trade Commission (the “ITC”).  The ITC complaint, as subsequently amended, alleged infringement by the Company of three of the five patents involved in the District Court case and one additional patent and also alleged infringement by three of our distributors and 11 of our customers who allegedly incorporate the Company’s SRAMs in their products.  The ITC complaint sought a limited exclusion order excluding the allegedly infringing SRAMs, and products containing them, from entry into the United States and permanent orders directing the Company and the other respondents to cease and desist from selling or distributing such products in the United States.  On July 21,

13


 

2011, the ITC formally instituted an investigation in response to Cypress’s complaint.   On June 7, 2013, the ITC announced that the full Commission had affirmed the determination of Chief Administrative Judge Charles E. Bullock that GSI’s SRAM devices, and products containing them, do not infringe the Cypress patents and that Cypress had failed to establish existence of a domestic industry that practices the patents.  Moreover, the Commission reversed a portion of Judge Bullock’s determination with respect to the validity of the patents, finding the asserted claims of one of the patents to have been anticipated by prior art and, therefore, invalid.  The Commission ordered the investigation terminated, and Cypress did not appeal the ruling.

 

The Minnesota District Court case had been stayed pending the conclusion of the ITC proceeding. Following the termination of the ITC investigation, the stay was lifted.  On May 1, 2013, Cypress filed an additional lawsuit in the United States District Court for the Northern District of California alleging infringement by our products of five additional Cypress patents.  Like the Minnesota case, the complaint in the California lawsuit seeks unspecified damages for past infringement and a permanent injunction against future infringement.  The Company filed answers in both cases denying liability and asserting affirmative defenses.  On August 7, 2013, the parties stipulated that the claims in the Minnesota case with respect to three of the asserted patents would be dismissed without prejudice and that the claims with respect to the remaining two patents would be transferred to, and consolidated with, the California case.  On August 20, 2013, the Court in the California case ordered the cases consolidated.  Discovery in the case is proceeding.

 

The Company believes that it has strong defenses against Cypress’ patent infringement claims and intends to continue to defend itself vigorously. However, the litigation process is inherently uncertain, and the Company may not prevail.  Patent litigation is particularly complex and can extend for a protracted period of time, which can substantially increase the cost of such litigation.  The Company has not recorded any loss contingency during fiscal 2012, fiscal 2013, fiscal 2014 or fiscal 2015 in connection with these legal proceedings as the Company cannot predict their outcome and cannot estimate the likelihood or potential dollar amount of any adverse results.  However, an unfavorable outcome in these proceedings could have a material adverse impact on the Company’s financial position, results of operations or cash flows for the period in which the outcome occurs and in future periods.

 

NOTE 7—STOCK-BASED COMPENSATION

 

As of September 30, 2014,  6,396,356 shares of common stock were available for grant under the Company’s 2007 Equity Incentive Plan.

 

The following table summarizes the Company’s stock option activities for the six months ended September 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Average

 

Weighted

 

 

 

 

 

Shares

 

Underlying

 

Remaining

 

Average

 

 

 

 

 

Available for

 

Options

 

Contractual

 

Exercise

 

Intrinsic

 

 

Grant

 

Outstanding

 

Life (Years)

 

Price

 

Value

Balance at March 31, 2014

 

5,585,500 

 

6,143,980 

 

 

 

 

5.13 

 

 

 

Options reserved

 

1,377,699 

 

 —

 

 

 

 

 —

 

 

 

Granted

 

(575,043)

 

575,043 

 

 

 

 

5.29 

 

 

 

Exercised

 

 —

 

(105,725)

 

 

 

 

4.04 

 

$

224,178 

Forfeited

 

8,200 

 

(8,200)

 

 

 

 

5.97 

 

 

 

Balance at September 30, 2014

 

6,396,356 

 

6,605,098 

 

 

 

$

5.16 

 

 

 

Options vested and exercisable

 

 

 

4,188,255 

 

4.45 

 

$

4.83 

 

$

3,742,830 

Options vested and expected to vest

 

 

 

6,556,577 

 

5.87 

 

$

5.16 

 

$

4,300,040 

 

The weighted average fair value per underlying share of options granted during the three months ended September 30, 2014 and 2013 was $2.14 and $2.93, respectively, and for the six months ended September 30, 2014 and 2013 was $2.16 and $2.72, respectively.

 

14


 

Options outstanding by exercise price at September 30, 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Options Outstanding

 

Options Exercisable

 

 

 

 

 

Shares

 

Weighted

 

Weighted Average

 

 

 

Weighted

 

 

 

 

 

Underlying

 

Average

 

Remaining

 

Number